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Enforcement and Compliance with Labor Regulations Lucas Ronconi Graduate student University of California Berkeley.

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Presentation on theme: "Enforcement and Compliance with Labor Regulations Lucas Ronconi Graduate student University of California Berkeley."— Presentation transcript:

1 Enforcement and Compliance with Labor Regulations Lucas Ronconi Graduate student University of California Berkeley

2 The Policy Debate A large share of employees lack access to legally- mandated benefits in LDCs Lack of access is particularly pronounced among low wage earners Should the government increase enforcement? - More compliance? - Job destruction / wage reduction? - Fiscal cost? - Social Welfare? Too much rhetoric, but no reliable evidence

3 Challenges to Estimate the Effect of Enforcement on Labor Market Outcomes ChallengesSteps I took 1) Measuring Government Enforcement Collected data on number of labor inspectors per province-year from Argentine Ministry of Labor ( ) 2) Measuring ComplianceCombined analysis of regulations with Household Surveys; and computed compliance with: Minimum Wage, Maximum hours, Vacations, Extra Annual Salary, Work-related injuries Insurance, Health Insurance 3) SimultaneityExplore electoral-cycle in labor inspector force staffing

4 Estimating the effect of Enforcement on Compliance with Labor Regulations in Argentina Sample: Urban private sector employees in 23 Argentine provinces between 1995 and Methodology: Separately estimate β for each labor regulation by Two- Stage Least Squares instrumenting Enforcement by Electoral Year (1) Compliance it = α + βEnforcement it + X it λ + it where: Compliance itj = Number of workers with benefit itj Total Employment it Enforcement it = Number of labor inspectors it Total Population it

5 Basic Statistics VariableMeanStd. Dev.Within-province Std. Dev. Overall Compliance Wage above legal Minimum Hours worked below legal Maximum Annual extra monthly wage Vacations Work-injuries insurance Health insurance Enforcement (Labor Inspectors per 100,000 people) Note: Unit of observation is a province-year

6 Results: An increase in Enforcement has a POSITIVE effect on Compliance with all labor regulations In particularly with: - Minimum Wage - Maximum Hours On average, if a province hires an additional labor inspector, overall compliance is likely to increase from 44.7 percent to 44.8 percent.

7 Theoretically, the effect of Enforcement on Number of people Employed is Ambiguous - Neoclassical model: Minimum wage compliance reduces employment, enforcing maximum hours work has contrary effect - Monopsony: Even enforcing minimum wage regulation can increase employment. - Access to labor benefits can improve workers productivity - Supply responses: work is more attractive Estimating the effect of Enforcement on Employment

8 Results: An increase in Enforcement has a small and POSITIVE Net Employment Effect - Formal job creation outweighs informal job destruction - An additional labor inspector, on average, leads to 430 more formal jobs per year - No significant effect on average wages

9 Policy Discussion Enforcing labor regulations that are moderate by international standards* appears to be a welfare enhancing policy * Effects found is this paper are largely driven by enforcement of minimum wages and overtime work, two regulations that in Argentina are moderate/low by international standards –Legal minimum wage is 25% of average wage –Normal hours is about 2,300 per year Estimated Fiscal Effect of Increasing Enforcement in Argentina is negative unless non-contributory benefits are reduced

10 If you know about any open research position please let me know, thanks!


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